Investors cautious ahead of UK services sector data; sterling falls slightly

The British pound fell slightly in early European trade on Tuesday, with investors looking to upcoming service sector data and the latest Brexit headlines for direction. Sterling rose sharply last week as investors bet a no-deal Brexit could be avoided and Britain's departure from the European Union delayed.

However, ongoing concerns about whether Prime Minister Theresa May can pass her Brexit withdrawal agreement through parliament on or before March 12 and uncertainty about the sort of Brexit Britain will have restrained the pound back this week. The British currency, one of the best performing major currencies so far in 2019, stood at $1.3184, below last week's highs of $1.3351.

Versus the single currency, the pound was slightly ahead at 85.995 pence per euro. Last week it hit as strong as 85.295 pence. Investors are also looking for signs of the impact of the Brexit uncertainty on the real economy.

The February release of the Purchasing Managers' Index for Britain's dominant services sector is due out at 0930 GMT. A Reuters poll of economists forecasts a reading of 49.9, down from 50.1 and putting the sector in contraction.

"After giving up all its early day gains yesterday, we see further downside to sterling today," ING analysts said in a research note sent to clients. "After the decline in Feb UK PMI manufacturing last week, our economists expect Feb UK PMI Services to slip below the psychological 50 mark today, signalling an economic contraction as Brexit uncertainty continues to weigh on UK economic prospects."

(With inputs from agencies.)